GAZA/CAIRO, Aug 12 (Reuters) - Talks to end a month-long war between Israel and Gaza militants are "difficult", Palestinian delegates said on Tuesday, while an Israeli official said no progress had been made so far.

As a 72-hour ceasefire held for a second day, Palestinian negotiators began talks with Egyptian intelligence after a meeting on Monday that lasted nine hours. The Israeli delegation returned to Cairo on Tuesday.

Hamas and its allies are seeking an end to an Israeli and Egyptian blockade of the Gaza Strip.

Egyptian state news agency Mena quoted Khaled al Batch, a leader of Hamas ally Islamic Jihad, as saying the present round of talks was "the most serious, intensive and difficult."

"The gaps between the sides are big and there is no progress in the negotiations," said an Israeli official who declined to be named. There was no immediate comment from Hamas, the Islamist group that dominates Gaza.

A Palestinian official with knowledge of the Cairo talks told Reuters, on condition of anonymity: "So far we can't say a breakthrough has been achieved ... Twenty-four hours and we shall see whether we have an agreement."

Hamas also wants the opening of a seaport for Gaza, a project Israel says should be dealt with only in any future talks on a permanent peace agreement with the Palestinians.

Israel has resisted lifting the economically stifling blockade on Gaza and suspects Hamas will restock with weapons from abroad if access to the coastal territory is eased. Neighbouring Egypt also sees Hamas as a security threat.

Israel pulled ground forces out of Gaza last week after it said the army had completed its main mission of destroying more than 30 tunnels dug by militants for cross-border attacks. It now wants guarantees Hamas will not use any reconstruction supplies sent into the enclave to rebuild those tunnels.

The Palestinian official said the Palestinian delegation had agreed that reconstruction in Gaza should be carried out by the unity government of technocrats set up in June by Hamas and the more secular Fatah party of Western-backed Palestinian President Mahmoud Abbas, who is based in the West Bank.

Israeli representatives are not meeting face-to-face with the Palestinian delegation because it includes Hamas, which Israel regards as a terrorist organisation. Hamas for its part is sworn to Israel's destruction.

WAR CRIMES INVESTIGATION

In Gaza, many families have returned to areas they had been forced to leave by the Israeli army, but some found their homes had been shelled or bombed. Some people pitched tents, while others spent the night in their homes if they could.

Children looked for toys in the rubble. One boy was happy to find his bicycle, pushing it along even though the tyres had been punctured.

"It is not safe yet but we miss our homes, we miss our neighbourhood, so we come to sit with friends and chat about our fate," said Abu Khaled Hassan, 50.

Israeli naval forces fired warning shots at a Palestinian fishing boat which broke the naval blockade on Tuesday, the military said, and Gaza officials said no one was hurt. The incident did not appear to threaten the truce.

Gaza hospital officials say 1,938 Palestinians, most of them civilians, have been killed since the July 8 launch of Israel's military campaign to quell rocket fire from the enclave.

Israel has lost 64 soldiers and three civilians, while the heavy losses among civilians and the destruction of thousands of homes in Gaza, where 1.8 million Palestinians are squeezed into a narrow enclave, have drawn international condemnation.

According to the United Nations, at least 425,000 displaced people in the Gaza Strip are in emergency shelters or staying with host families. Nearly 12,000 homes have been destroyed or severely damaged by Israeli air strikes and heavy shelling.

In Geneva, the United Nations named an international commission of inquiry into possible human rights violations and war crimes by both sides during the conflict.

The commission, which will be headed by William Schabas, a Canadian professor of international law, was hailed by Hamas and condemned by Israel.

"Hamas welcomes the decision to form an investigation committee into the war crimes committed by the occupation (Israel) against Gaza and it urges that it begin work as soon as possible," spokesman Sami Abu Zuhri said.

Israel's foreign ministry said the Human Rights Council was biased against Israel. "The Human Rights Council long ago turned into the 'terrorist rights council' and a kangaroo court, whose 'investigations' are pre-determined," Foreign Ministry spokesman Yigal Palmor said in a statement.

"If any more proof were needed, the appointment of the chairman of the panel, whose anti-Israel bias and opinions are known to all, proves beyond any doubt that Israel cannot expect justice from this body, whose report has already been written and all that is left is to decide who will sign off on it."

Schabas rejected those claims. "As far as I am concerned they're not written at all. That's the whole point of an investigation," he told Israel Radio.

"I am not anti Israeli. I've frequently lectured in Israel at universities. I am a member of the editorial board of the Israel Law Review. I wouldn't do those things if I was anti Israel," Schabas said.

"The more Israel participates in the inquiry by providing us with specific information about targeting and selection of targets, that will assist the commission in making more fair and accurate judgements about proportionality," he added.